U.S. Markets closed

ETFs in Focus After Yahoo's Mixed Q1 Results

Zacks Equity Research

Shares of Yahoo Inc. YHOO jumped 0.32% in after-hours trading on Tuesday, April 18, 2017. The company reported a 22.1% increase in quarterly revenues, ahead of its sale to Verizon Communications. It failed to beat the Zacks Consensus Estimate on earnings in the first quarter of 2017  but succeeded in beating revenue estimates. Moreover, the year-on-year performance was impressive, as it swung from net loss of $99.23 million to net income of $99.43 million.


Verizon Deal


Chief executive officer Marissa Mayer expects the deal to close by June this year, before the end of the second quarter. The earlier agreed upon price of $4.83 billion was slashed by $350 million following the security breach at Yahoo. After the takeover, Verizon’s AOL and Yahoo will be merged into a new entity called Oath.


Q1 Performance


Yahoo reported non-GAAP earnings per share of $0.06, falling short of the Zacks Consensus Estimate of $0.08. However, revenues of $833 million (excluding total acquisition costs) came ahead of the consensus mark of $800 million.


Revenue Performance


Search revenues (excluding Total Acquisition costs) were down to $309.296 million from $347.721 million a year earlier.


Display revenues (excluding Total Acquisition costs) increased to $398.145 million from $379.952 million a year earlier.


Other revenues (excluding Total Acquisition costs) declined to $126.327 million from $131.716 million a year earlier.


Plan of Action


Yahoo is working to ensure that the takeover deal is completed without any further issues. "As we enter our final quarter as an independent company, we are committed to finishing strong and planning for the best possible integration with Verizon," Yahoo CEO Marissa Mayer said in a statement.


In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to Yahoo.


PowerShares Dynamic Media Portfolio ETF PBS


This fund focuses on providing exposure to the U.S. media industry. It has AUM of $143.7 million and charges a fee of 62 basis points a year. From a sector look, the fund has a 73.85% allocation to Consumer Discretionary, 23.65% allocation to Information Technology, and 2.51% allocation to Industrials (as of April 17, 2017). It has a 5.28% allocation to Yahoo. The fund returned 11.07% in the past one year and 4.54% in the year-to-date time frame (as of April 18, 2017). PBS currently has a Zacks ETF Rank of #3 (Hold) with a Medium risk outlook.


Social Media Index ETF SOCL


This ETF offers exposure to companies engaged in social media. It has AUM of $89.4 million and charges a fee of 65 basis points a year. It has 4.80% allocation to Yahoo. The fund returned 30.75% in the past one year and 14.66% in the year-to-date time frame (as of April 18, 2017). SOCL currently has a Zacks ETF Rank of #3 (Hold) with a High risk outlook (read: 5 ETFs Set to Surge Post Netflix Q1 Results).


First Trust Dow Jones Internet Index Fund FDN


This ETF offers exposure to companies that derive more than half of their revenues from the Internet. It has AUM of $4.05 billion and charges a fee of 54 basis points a year. From a sector look, the fund has high exposure to Information Technology, Consumer Discretionary, and Financials, with 69.82%, 20.00%, and 4.63% allocation, respectively (as of April 17, 2017). It has a 4.41% allocation to Yahoo. The fund returned 25.95% in the past one year and 9.86% in the year-to-date time frame (as of April 18, 2017). FDN currently has a Zacks ETF Rank of #3 (Hold) with a High risk outlook (read: What Made Internet ETFs Outperform in the Bull Market).


 
Source: Yahoo Finance

To Conclude


Yahoo reported mixed results. Though the share performance has been impressive in the past year (up 25.69%) and year-to-date time frame (up 22.99%), Yahoo’s future following the Verizon deal is still uncertain. The deal is still a few months away from closing. As a result, we believe it is prudent to be on the sidelines for now.


Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
    
 


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Yahoo! Inc. (YHOO): Free Stock Analysis Report
 
FT-DJ INTRNT IX (FDN): ETF Research Reports
 
GLBL-X SOCL MDA (SOCL): ETF Research Reports
 
PWRSH-DYN MEDIA (PBS): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report